It seems to have been a long time coming—we’ve lost count of how many times it was supposed to be imminent—but China has finally announced it will remove all tax rebates on most exports of aluminium product, effective the start of July.
Aluminium products currently qualify for an export tax rebate of 8-11% depending on specific product. Ever since the authorities hiked the export tax on primary aluminium from 5% to 15% at the start of this year, primary exports have slumped. But local players have been quick to exploit the gap between the tax treatment of primary metal and that on products with the result that exports of product have soared over the same time-frame.
Product exports totalled 801,400t in the Jan-May 2007 period, almost double the 408,000t exported in the year-earlier period.
Rather than stifling aluminium exports as intended with the hike on the tax in primary metal, the Chinese authorities have simply caused a displacement into product, some of which is not really “product” at all in the sense used by Western players.
Indeed, the main reason this expected move on taxes has been delayed so many times is because local producers of real value-added product didn’t want to be penalised together with those simply casting aluminium ingot into slab, for example.
That argument has evidently been heeded by the authorities because while rebates will be removed completely on exports of rod, bar and profiles, they will be kept for strip and foil.
The intention evidently is still to favour true value-added product exports while constraining the displaced flow of metal via first-stage conversion. The over-arching aim of this move—and the other 2,830 tax adjustments across a host of commodities announced by the Ministry of Finance today—is to reduce China’s trade surplus.
In aluminium’s case it is also the latest move in the cat-and-mouse game between the authorities—keen to weed out smaller players and consolidate the aluminium industry into bigger, more controllable players—and the independent smelter sector.
Will it work? That remains to be seen. Certainly, the hope is that soaring “product” exports will be reduced, which should prove beneficial for the global market but could bring painful consequences for those Chinese players that make their money from the tax loopholes. However, if primary aluminium is anything to go by, further action may be needed. It was only when Beijing hiked the export tax to 15% at the start of January that the tap on primary metal exports was well and truly turned off.
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